July 3, 2006 • VOL. 44, NO. 13 • Oakland, CA

Nonprofit health institutions
better on outcomes and costs

By Nancy Frazier O’Brien
Catholic News Service

WASHINGTON (CNS) -- Nonprofit health care institutions do better in terms of both costs and health outcomes than their for-profit counterparts, according to an analysis of 162 previous studies published by Health Affairs, a journal of health policy thought and research.

In the article, published online June 20, authors Mark Schlesinger and Brad Gray said that “nonprofit health plans were significantly more likely than for-profits to support safety-net providers and contribute to community health initiatives that benefit the poor.”

Schlesinger, a professor of health policy at Yale University School of Medicine, and Gray, a research associate at the Urban Institute in Washington, also found that:
• For-profit institutions “more aggressively mark up prices over costs and otherwise maximize revenue.”
• Nonprofits “appear more trustworthy in delivering services, being less likely to make misleading claims, to have complaints lodged against them by patients, and to treat vulnerable patients differently from other clientele.”
• Nonprofits are “typically the incubators of innovation,” being more likely to develop services “for which there is not yet a market.”
• Nonprofits are “slower to react to change,” and thus less likely to drop services or withdraw from markets when profit margins decline.

Citing figures from 2002, the authors said for-profit companies operate about 70 percent of the nursing homes, health maintenance organizations and dialysis centers in the country, but only 16 percent of the acute-care hospitals, 24 percent of the substance-abuse treatment facilities and 27 percent of the hospice programs.

The differences between nonprofit and for-profit health care institutions have been under scrutiny in recent years as some members of Congress and state legislators look into the benefits to society of tax exemptions provided to nonprofit institutions.

Last year Sen. Chuck Grassley, R-Iowa, chairman of the Senate Finance Committee, asked 10 of the nation’s largest nonprofit hospital systems, including Resurrection Health Care in Chicago, to answer 46 detailed questions on its charity care, patient billing practices, debt collection procedures and other policies.

Grassley and others are considering introducing legislation that would require nonprofit hospitals to provide charity care in an amount that is equal to or higher than the amount the government fails to receive because of the institution’s tax exemption. Similar proposals have come up in several states.

But Schlesinger and Gray said such a top-down system of accountability would not adequately reflect the needs of all communities. They proposed instead that systems for judging the community benefit of hospitals be drawn up and evaluated within each community.

“Greater nonprofit accountability is a valid policy goal, so long as it does not lead to a narrowly defined specification of community benefit,” they said.

The Catholic Health Association, during its recent meeting in Orlando, Fla., released an updated guide to help Catholic health institutions assess the benefits they provide to a community and share that information with the community, including legislators.

“When Catholic health care and other not-for-profit health care organizations began in this country, there was a clear understanding that they provided community benefit,” CHA said in a summary of the document, “A Guide for Planning and Reporting Community Benefit.”

“Today, however, the community service role of not-for-profit health care is not well understood by policymakers and the public,” it added. “As a result there is a growing need for not-for-profit health care organizations to tell their community benefit story.”

CHA said community benefits include charity care, subsidies to insufficiently funded government health programs for the poor, community health programs, professional education, research, financial contributions and community-building activities.

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